Social Security “Reform”:
A Smokescreen for Benefit Cuts by Lee Sustar
www.dissidentvoice.org
February 10, 2005First Published in
Socialist Worker

George
W. Bush’s Social Security privatization plan rests on three big lies.

The first is that the
current system is in crisis and doomed to fail. The second is that gains in
private retirement accounts will exceed traditional benefits from the
program. And the last is that such accounts will become a cornerstone of an
“ownership society” in which working people will steadily build wealth.

Each of these
assertions can be easily exposed as nonsense -- and a smokescreen for
drastic cuts in benefits and the dismantling of the entire system. But
because the Democratic Party accepts much of the White House’s political
framework, Bush has been handed an excellent opportunity to destroy the most
successful social program in U.S. history.

Consider the
“pre-rebuttal” to Bush’s State of the Union speech offered by House Minority
Leader Nancy Pelosi. She put “fiscal responsibility” first as the criteria
for what she called “changes” to Social Security. While Pelosi criticized
Bush’s plans for privatization of Social Security and called for continued
guaranteed benefits for current workers, she pointedly avoided saying that
benefits shouldn’t be cut at all.

Nor did she defend
Social Security for what it is -- a progressive transfer of wealth, using
payroll taxes paid by the employed and their employers to support retirees
and those unable to work. Instead, Pelosi resorted to Bush-speak -- calling
the program “a proud, entrepreneurial achievement of the New Deal,” the
expansion of social programs in the 1930s. The Democrats’ alternative --
whatever that is -- will be “based on America's core values and the
entrepreneurial spirit that is the legacy of our party and of our country,”
she said.

Thus, the battle for
Social Security begins on Bush’s own turf. The Democrats not only accept the
constraints of massive federal budget deficits enlarged by Bush’s tax cuts
for the rich, but they try to defend Social Security as a way of creating
tens of millions of mini-capitalists -- rather than a means of strengthening
and extending a social safety net in a period of falling wages and rising
inequality. It was the domestic policy equivalent of John Kerry’s statement
that he would have voted for Bush’s war on Iraq even if he had known there
were no weapons of mass destruction there.

The Democrats know
full well that Bush’s description of the Social Security crisis is about as
accurate as his account of Saddam Hussein’s yellowcake uranium. But
calculations of political expediency -- and the lure of campaign
contributions from Wall Street firms eager to get their hands on privatized
accounts--means that the Democrats are prepared to play along with the White
House.

After all, it was Bill
Clinton who dismantled another key pillar of the New Deal -- the federal
welfare system--and introduced talk of “fixing” Social Security, giving the
privatizers a wide-open field.

Then, in his 2000
presidential campaign, Al Gore promised to use a “lockbox” to protect Social
Security. In fact, Gore wanted to use the Social Security trust fund surplus
to retire government debt, then sell new government bonds in the future to
fund the system as needed.

This maneuver,
described recently by economist Robert Kuttner as an “accounting gimmick,”
only gave more ammunition to the crisis-mongers. “If the idea was to
segregate Social Security surplus funds and invest them separately, that
could have been done,” Kuttner wrote. “But that's not what Gore offered.
Wall Street gets nervous about large government reserves being invested in
securities.”

However, if that money
can be funneled instead through what Bush calls “personal accounts,” Wall
Street will skim hundreds of billions of dollars in fees -- and the federal
government can ditch its obligation to guarantee a modest income for
retirees. Bush’s Social Security scheme is a fraud -- but we can’t count on
the Democrats to expose it.

Dismantling Bush’s big
lies

WHILE THE full details
of the Bush plan haven’t been disclosed, it’s already possible to expose his
plan’s main claims.

Lie number 1: Social Security will soon go “bankrupt.”

THIS CLAIM was refuted
in the 1999 book,
Social Security: The Phony Crisisby Dean Baker and Mark
Weisbrot. Yet the Washington-Wall Street propaganda machine has nevertheless
managed to bury several key facts.

The Social Security
trust fund won’t be “bust” in 2018, as Bush claims. Rather, that’s the year
that the fund is set to begin paying out benefits from the fund’s surplus,
rather than using the interest on Treasury bonds, as the government does
today. Even if nothing were done to shore up the system, the trust fund
surplus could pay full benefits until 2052, according to the latest
Congressional Budget Office forecasts.

Another claim for the
need for privatization is the fact that there will be only 2.1 workers for
every retiree by 2030 -- down from 3.3 today. But as Baker and Weisbrot
point out, the ratio was 8.6 workers to one retiree in 1955. Today’s far
smaller ratio didn’t lead to an economic crisis because of the tremendous
advances in productivity throughout the economy.

What’s more, those who
predict a crisis for Social Security use pessimistic forecasts of economic
growth that assume lower revenue from payroll taxes used to fund the system.

Even if the worst-case
scenario proves accurate, the system could easily be put on strong footing
by gradually increasing the payroll tax over several years -- or, as a more
equitable alternative, by lifting the $87,900 cap on wages and salaries for
such taxes. While the tax burden on a future generation of workers would be
somewhat higher, this would only be a small part of advances in real wages
that can be expected, based on historic averages in increases in
productivity.

Bush, of course,
refuses to countenance such a tax increase -- even though his plan to make
his tax cuts of 2001 and 2003 permanent would cost $344 billion in 2027 and
$377 billion in 2033, according to economist Jason Furman--sums far
exceeding the predicted Social Security shortfall.

Lie number 2: Private accounts would leave future retirees better off than traditional
Social Security benefits.

STARTING IN 2009, the
Bush plan would allow those born in 1965 or later to divert up to 4 percent
of their total wages from what they currently pay in payroll taxes. The
initial limit would be $1,000, gradually increasing to the full 4 percent
per year.

The incentive to do
so, however, isn’t really the promise of making money on financial markets,
but an opportunity to make up for Bush’s proposed cuts in benefits in the
traditional program. Bush wants to calculate increases in future Social
Security benefits based on inflation rather than increases in real wages--a
change that would effectively reduce benefits and exclude retirees from
future overall gains in the standard of living.

Upon retirement, those
with private accounts would have to use the money to purchase an annuity
payment to keep them above poverty, and either cash in or invest the
leftover amount -- if there is any leftover, that is.

What’s more, the
private accounts are to be modeled on a 401(k) retirement plan for federal
employees, which limits the choice of investments to five or six
funds--hardly the individual control touted by Bush. While the fees to
manage such plans might be lower than in genuine individual accounts, they
could still amount to 20 percent of retirement income for the average
worker, according to an analysis by former investment banker Nomi Prins in
the magazine Against the Current.

Finally, the
government would have to borrow an estimated $4.5 trillion in the first two
decades of privatization to pay for the “transition costs” to fund the
private accounts--making the government deficit that supposedly justifies
privatization far worse.

Lie number 3: Social Security reform will usher in an “ownership society” in which
working people gain control over their lives.

“IF YOU can move from
a nation where 50 percent of Americans own stock to a nation where 75
percent to 80 percent own stock, you could change political attitudes and
the political culture in a way that’s more conservative and more
pro-Republican,” Stephen Moore, former president of the pro-privatization
Club for Growth, told the Los Angeles Times.

In fact, “the bottom
half of the population held just 1.4 percent of the stock in 2001, with an
average portfolio of just over $3,000” noted economic writer
Doug Henwood
in a recent book. “And since only a minority of bottom-half households own
any stock, the average is deceptively high.”

In any case, the
wealthiest 10 percent own three-quarters of all stocks.

These statistics
clarify the real effect of Social Security privatization and other plans for
an “ownership society” -- an effort to get working people to identify their
financial interests with those of the rich and powerful, while the
government abandons the elderly to a harsh economic fate.